Personal loans help with urgent need of funds for requirements like education, travel, marriage etc. In fact, 67% of Indians have taken a personal loan at some point in life. But for certain reasons, you may have to opt for personal loan cancellation.
It is pertinent to note that any loan cancellation may affect your credit score. Hence, you must know every aspect of personal loan cancellation before making the final decision.
Let’s discuss various reasons for cancelling a personal loan and the subsequent effects on your credit score.
Common reasons for personal loan cancellation
Personal loan cancellation results in the termination of the agreement between a lender and a borrower. Some of the common reasons for cancelling a personal loan are -
• Improvement in the financial situation
• Better loan offers from other lenders
• Purpose of borrowing fulfilled from other sources
• Terms are no longer acceptable
Impact of personal loan cancellation on credit score
Many borrowers often wonder ‘Can we cancel a personal loan before its loan disbursem*nt?' The answer is Yes! But the impact of personal loan cancellation on credit score depends on the stage of your application.
• After application submission
You can choose to cancel the application before the lender accesses your credit report from CIBIL or other credit bureaus. This will ensure that there is no impact on your credit score.
• Before disbursal
You can also opt to cancel the loan at the disbursal stage. By this time a formal enquiry into your credit report has already been made by the lender. So, there will be no further impact on your credit score.
• After disbursal
If you wish to cancel the loan after disbursal, it must be done within the cooling-off period. This period is specified in the terms and conditions of the loan agreement. Cancellation might not be possible after this cooling-off period has expired.
Reapplying after a personal loan cancellation
It is common for borrowers to apply for a instant personal loan after they have opted for loan cancellation earlier. So, you may also reapply for a personal loan after considering the following factors -
• Credit score
To get the best deal on your loan, ensure that your credit score is above 750.
• Time
Wait for a few months (or weeks) before reapplying. Otherwise, it may indicate financial indiscipline.
• Lender
Choose the lender for your loan carefully. Every time a lender accesses your credit report, it may impact your credit score.
• Amount
Opt for a loan amount that covers all your needs. The EMI should be affordable and should not affect your daily lifestyle.
Factors that affect your credit score
Various factors affect credit scores generated by different credit bureaus. Some of the crucial factors that you must monitor are -
• Timely payments
You must pay all your EMIs and credit card bills on time for a good credit score.
• Credit card debt
Try to maintain your credit card debt below 30% of the approved limit as a responsible borrower.
• Outstanding loans
You should try to foreclose outstanding loans whenever possible to have a good credit score.
• Selective applications
Do not apply with multiple lenders simultaneously. If several formal enquiries from lenders are registered in your profile quickly, it indicates credit hungriness.
Also read - CIBIL score calculation: How is CIBIL score calculated?
Conclusion
If you are looking for a hassle-free personal loan experience, opt for an IDFC FIRST Bank Personal Loan, which also provides a seamless Personal Loan balance transfer option through its quick and easy digital application process.With flexible repayment periods of up to 84 months and competitive personal loan interest rates, personal loans from IDFC FIRST Bank meet all your needs.
